The day after disappointing investors once more, Swedish kit vendor Ericsson delivered news it hopes will cheer them up a bit.
Ericsson announced its biggest ever acquisition in November of last year, dropping $6.2 billion on Vonage in a bid to improve its fortunes in the enterprise market. There didn’t seem to be much competition concern at the time but M&A of this size always need to be scrutinized by agencies in charge of maintaining the integrity of the market.
That was until Ericsson owned up to dodgy dealing by some of its representatives in Iraq last February, which caught the attention of US authorities. In its self-appointed role as world policeman, the US had previously fined Ericsson for corrupt activities in various countries, reducing the amount on the condition that Ericsson was squeaky clean from then on. So when this Iraq stuff came to light, the prospect of a catastrophic punishment loomed.
We still don’t know the extent to which the US state will enrich itself at the expense of Ericsson shareholders this time, but we can be sure that the Vonage acquisition was delayed as a direct result of Ericsson’s return to the naughty step. Today Ericsson was relieved to announce that the Committee on Foreign Investments in the United States found giving a few back-handers to some undesirables in Iraq has no bearing on this acquisition one way or the other.
In principle this is good news for Ericsson and its investors, but there doesn’t seem to be much of a share price reaction either way. The outcome was presumably already priced in and it must be assumed that investors don’t take this decision as much of a sign about further punishment either way.
The jury is still out on how great a move this is by Ericsson, however. The underlying rationale seems to be a significant boost to Ericsson’s in-house API (application programming interface) competence. The thinking is that by helping other sectors get the kind of access to networks its core CSP client base has, Ericsson can dramatically expand its total available market and be a major player in all the new comms business opportunities constantly promised by 5G.
Ericsson says the deal will now close no later than 21 July of this year, after which the long and fraught process of integration starts. It took Nokia years to fully assimilate Alcatel Lucent and that was another networking company. How Ericsson enables a group of developers more used to creating unified communications apps to help it achieve its broader strategic goals will be critical and it could be a while before we’re able to gauge how successful this acquisition has been.
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